Matt Stoller writes: Earlier this week, the House Ag Committee marked up some bills deregulating derivatives. I don’t think they were expecting anyone to really notice, but there was a bunch of press on what they did.

The next step in the legislative process is for the House Financial Services Committee to look at the bills. That will take place in April.

Here’s a round-up.

Bloomberg: Wall Street May Win Swap-Rule Reprieve in U.S. House Legislation

To which we are compelled to add this quote from John Kenneth Galbraith:

“There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.”

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “Deregulating Derivatives: What Could Possibly Go Wrong?”

While demand was down, supply was up in the Summer of 2008, oil inexplicably peaked at $145/barrel.

The timing was suspicious enough to warrant investigation by the Pentagon, who found that oil prices were possibly cornered/manipulated for the sole purpose of crashing the housing bubble, they could not find this source because the CFMA doesn’t require position limits or position disclosure on futures derivatives.

Later, Sen. Bernie Sanders leaked CFTC records that showed the largest holders of oil futures in the Summer of ’08 were Goldman Sachs and Morgan Stanley.

It appears the “terrorists” were TBTF’s taking advantage of a system of rules bought and paid for by them.

Since then, the CFTC’s Bart Chilton has tried his best to implement the Dodd-Frank10% position limits and has continually been defeated by the bank lobby.

To me, this boils down to a wash-rinse-repeat stock market that will periodically continue to clean out pensions and retail investors.

This will only change when the majority of Americans are on the verge of an outright revolt that big money is unable to to undermine with propaganda the way it did with the “Tea Party”, who’s goal tarted with anger over TBTF bailouts, and inevitably was guided to tax cuts for the wealthy and standing against healthcare reform.

This is why TBTF must go and the banks must become smaller. If they want to rely on the taxpayer to back them, then they must be run as very boring institutions. Their trading arms that can create London Whales need to be spun off into separate entities that do not receive federal guarantees.

So can we include politicians as one of the few fields of human endeavor where history counts so little? Or are the politicians counting on the electorate not to remember the history? Hard to call methinks.

This again confirms why I buy gold, to protect me from dumb government decisions, and this will go down as one if not the dumbest decisions of all times if passed. At least before Congress could say they didn’t know how destructive these things are, now even that scanty cover/excuse is gone.

I’ve tracked derivatives (through the popular press and have dozens of articles on them) since Buffett first warned about them in his 2002 annual report where he called them “…financial weapons of mass destruction…” I’ve often wondered how such blatantly destructive financial innovations could be tolerated. It turns out that early on Greenspan, as it fit with his strong belief that regulations were bad, was a big fan, and eventually derivatives got special treatment by Congress. They ballooned to some $600 trillion in notational value and had a huge part in the 2006-2007 explosions of the financial system.

When Paulson first got Congress to approve TARP. His stated intention was to buy up these nasty assets from the banks. Weeks later he came back acknowledging that buying the derivatives wasn’t an option since he couldn’t even find out who owned what derivatives. That’s when Paulson “forced” the banks to take billions from Uncle Sam, whether they wanted to or not.

The next article shines a little light on how these things work and who controls them. It is a secret group of bankers meeting to protect their interests.

“On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk. In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.”http://www.nytimes.com/2010/12/12/business/12advantage.html?pagewanted=all&_r=1&amp;

I have dozens of articles like this, and if Congress doesn’t know how toxic these things are it is because they don’t want to know and are acting in their responsibility to protect the upper management of the big banks.

Just read “Confessions of an Economic Hitman” by John Perkins. Now it all makes sense. I and my family and relatives will make it to death in modestly OK shape to very good shape, thank you very much.. But I wonder about many of you or your children and grandchildren.

Brilliant article in the NY Times Business section today (Sunday, March 24, 2013). Title: “A Boss’s Challenge: Have Everyone Join The In Group.” Necessary back story to politics and economics, especially as people are abandoning the “alternative” groups they used to belong to, such as churches. Now they are just part of the Big Neo-Liberal market in human worth and non-worth.

Come to think of it, many still belong to an alternative group – sports team fandom.

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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